I have two versions of a review of this recent book by Montek Singh Ahluwalia, Backstage: The Story Behind India’s High Growth Years. When I first wrote it, it was too long, at over 3000 words. I had to trim it down considerable and make it 700 words, for The Open Magazine. I will post a link to that review here as and when it is published in that shorter form. Those who might be interested in the longer form, please read on.
Backstage – A travelogue by Montek Singh Ahluwalia
Long after putting down Montek Singh Ahluwalia’s “Backstage”, one observation that remained with me was the claim that Manmohan Singh’s ten year tenure as PM was “the longest continuous period anyone had held that position since Jawaharlal Nehru…” overlooking Indira Gandhi’s 11+ tenure of years from January 1966 to March 1977. On further reflection, I felt that it was one of the minor issues with the book.
Montek starts “Backstage: The Story Behind India’s High Growth Years” with a caveat, “This book is not a memoir.” but “a travelogue of India’s journey of economic reforms…” His aversion to the word “memoir” is for fear of it being called a “selfie in book form”. I detest travel and travelogues, just as Levi-Strauss begins one of his books. Nevertheless, I plodded on.
Montek came from humble origins but had a stellar education at St. Stephen’s College and Oxford, where he did his PPE (Philosophy, Politics, and Economics), before joining the World Bank. In 1979, he and his wife, Isher, left their promising careers at the World Bank and the IMF, he to be a part of Indian financial administration. Only a few months earlier, Prof Raj Krishna had coined the term “Hindu Rate of Growth”, and China had embarked on its journey of economic reforms. Morarji Desai was still Prime Minister, but for only a few weeks more. And Manmohan Singh was Secretary, Economic Affairs.
As Economic Adviser, Joint Secretary Additional Secretary to PM Rajiv Gandhi, Commerce Secretary, Finance Secretary (Economic Affairs), Member and later Deputy Chairman of the Planning Commission, Montek was both player and spectator as economic reforms unfolded over his three and a half decades covering 11 Prime Ministers and around 15 Finance Ministers. He was witness to how policy was being reshaped from the earliest days of economic reform, from an era of licence-permit raj to that of a more open and liberal economy.
The book has many pluses, including revealing anecdotes, insights into key events, and a logical sequencing of how reforms were ushered in. He discusses at length the forex crisis of 1991 where, to the Reserve Bank’s credit, then Governor Malhotra had warned both the PM and the Finance Minister in late 1988, but nothing was done about it. The detailed insights include the success story of Maruti, shift from import licensing to import duties, India approaching the IMF and finally escaping the “debt trap”, the Swaraj Paul affair, decontrol of cement, introduction of long term element in fiscal policy, gradual depreciation of the rupee and freeing of exchange rates, early days of computerisation at the government, progressive reduction in income tax, the telecom revolution, and “reform by stealth”.
Also interesting is his discussion on how the Indian reform experience differed from China’s, a key factor being China with a closed society and open mind, but India an open society with a closed mind. One cannot fault much with how Montek describes all these, putting them in a global context. But, the disappointments are also many.
Architect of reforms
The most important issue is the longing to anoint Manmohan Singh as the architect of economic reforms. This seems to be one of the main purpose of the book. One thought that was a long settled issue with even Daman Singh, Manmohan’s daughter, in her book on her parents, Strictly Personal, stating that: “In all sincerity, Manmohan would give Narasimha Rao the credit for the success of the reforms. He believed that it was his determination and courage that enabled the nation to come out stronger. And that history would remember his unique leadership of a minority government that would change the way all mainstream parties thought about the Indian economy.”
In the section on “Real Architect of Reforms”, Montek gives Narasimha Rao full credit, but only for choosing Manmohan Singh as Finance Minister, “without which there would have been no reforms”. “Trade liberalization, the shift to a flexible exchange rate and reforms in the financial sector occurred largely because of Manmohan Singh’s expertise and wisdom. He knew the interdependence of these reforms and orchestrated them skilfully.” Even Manmohan might cringe at the undisguised and unqualified adulation.
Montek goes on to add that “Rao’s claim to be the real father of India’s economic reforms would have been unassailable if he had led from the front and pushed the Congress party and the public to think afresh on the policies needed to meet contemporary challenges. This he did not do.” Montek calls Rao’s a policy of “reform by stealth” which is opportunistic. Manmohan, to him, is on the other hand, a genuine gradualist.
Manmohan Singh was involved with economic policy making in India for at least a good two decades before the reforms started and is therefore as much culpable as many others in how India chose its course of development. Montek’s assumption that a lateral entrant, that too as a Rajya Sabha MP from Assam, without any political base, could independently chart out the course of economic reform in India, has no basis in the working of any parliamentary democracy.
Narasimha Rao’s leadership strategy was, quite like JRD Tata’s, to pick the right person for a job and give him/her a free hand. He could have opted for other worthies, and there were many of them around. For example, I.G. Patel, Manmohan’s predecessor at the Reserve Bank of India, who was also Director, London School of Economics for six years, would have been a great choice.
An advantage Narasimha Rao would have found with Manmohan, apart from his academic credentials, was his reputation of being pliable, at least in comparison to I.G. Patel. A case in point is the granting of a bank licence to BCCI, a Luxembourg-based bank set up in 1972 by a Pakistani banker. In less than ten years of existence, the bank had earned the dubious distinction of being the Bank for Crooks and Criminals International. I.G. Patel recorded in his memoirs how he refused a licence to the bank because of adverse reports from RAW. Soon thereafter, I.G. Patel chose to leave the Bank three months ahead of the end of his tenure. The licence was given during the tenure of Manmohan Singh, who succeeded him. When the bank was finally liquidated in 1991, when Manmohan Singh was the Finance Minister, it would result in a ruckus in the Parliament for altogether different, but related reasons.
Coverage of the financial sector
A major weak spot in Montek’s narrative is its flawed coverage of the financial sector. The story behind India’s growth years would be incomplete without reference to developments in the financial sector. It is not just the BCCI that he omits to mention. He makes only cursory references to institutions that came up such as SEBI, NSDL, NSE, and IRDA without critically analysing their contributions. He also omits altogether the significant steps made in the development of payment systems and the stock/commodity market, and in their derivative segments, India is at the forefront in terms of efficiency and adherence to best practices.
A significant omission is any discussion on the case of Indian Bank, which in the year 1996, reported the highest loss in the history of Indian banking. In real terms, it is still among the highest. The Reserve Bank had been nudging the government, from around 1993, if not earlier, to remove the then CMD of Indian Bank, who had become a “rogue banker”. Such powers even today falls under the domain of the government. But the government kept granting him extension after extension, the last two years without even bothering to inform the Reserve Bank. Another glaring omission from the narrative is the curious case of Global Trust Bank Ltd., given a bank licence in 1994, only to fail almost a decade later.
Montek was on the Central Board of the Reserve Bank for almost seven years from November 1991 to September 1998, covering the tenure of three Governors. One would have normally expected this travelogue to provide more insight on central bank-government relations far beyond the historic agreement of 1997, which put an end to automatic monetisation of government debt. On the other hand, one sees many inaccuracies and seemingly biased observations.
Montek recalls a Narasimham Committee (1991) recommendation that supervision be taken out of the RBI and given to a quasi-autonomous Supervisory Board. He adds that had this been done then, “we might have avoided some of the problems with bank lending that surfaced much later.” In one stroke, he sweeps all the dirt that contributed to the current banking mess at the doorstep of the Reserve Bank.
The Narasimham Committee recommendation was a blind adoption of a practice started a few years earlier in the Scandinavian countries of integrating supervision, starting with Norway. The Committee does not seem to have thought through the implications of its recommendation. What was finally implemented was the recommendation of the JPC (which surely takes precedence over the Narasimham Committee) which gave its report the following year. In terms of this, a separate Board of Financial Supervision was to be set up “under the aegis of the RBI”. This was set up in February 1993.
Montek fails to mention other related, but equally important, recommendation of the Narasimham Committee. The Committee had wanted changes to how CMDs were appointed in public sector banks. It also recommended “that the duality of control over the banking system between the Reserve Bank and the Banking Division of the Ministry of Finance should end and that the Reserve Bank should be the primary agency for the regulation of the banking system.” In other words, the Banking Division needed to be abolished! An argument that Narasimham reiterates in his memoirs.
Incidentally, not all that the Narasimham Committee recommended was based on sound wisdom. For instance, the Committee wanted that the regulator should keep away from what does not concern protection of depositors’ interests. The report mentions managerial functions and remuneration as two examples. But, banking history, experience, and wisdom has shown that these are quite critical to ensure that there is no conflict of interest, and that employee remuneration, especially through incentives, is not skewed towards putting a bank at greater risk. It also overlooks the fact that most of these minute instructions are from the Banking Division and not the Reserve Bank.
Such recommendations fall into a pattern of being divorced from Indian realities That was in keeping with the westward looking policy recommendations that have been the bane of many a Committee in India. This includes the Percy Mistry, Raghuram Rajan, and Justice Srikrishna Commission, all babies of the Planning Commission/MOF under Montek’s charge, and during the Prime Ministership of Manmohan Singh. These Committees, including the Raghuram Rajan Committee, with no/minimal representation from the Reserve Bank, were unthinkable two decades earlier, say, when the Narasimham Committee reports were prepared. That two of these do not find a mention in Montek’s travelogue, and the Rajan Committee receives just a passing reference, is proof of their having landed in their rightful place in history.
Ten years back, one finance ministry official insisted on instructing public sector banks, every other day, on minute operational functions of banks, including how and where to buy an ATM. These were followed up with letters to the Reserve Bank that similar instructions be issued to other banks. Overlooking several Committee recommendations that ownership and control be separated in public sector banks, he kept addressing public sector bank Board meetings. The worst instance of this regulatory one-upmanship got manifested in getting an additional 21st member, himself, nominated to the Reserve Bank Board by amending the Reserve Bank of India Act through a legislation on factoring! It is not surprising that this period coincided with the phone-banking era, which finds no mention in the book, which nevertheless gathers all the dirt at the Reserve Bank’s doorstep.
Montek goes on to say that “No individual in either the RBI or ministry was named” by the JPC in its report. This is factually incorrect. The JPC specifically named, with reasons, as to why the then Governor, two Deputy Governors, and the Chief Officer of the regulatory department were responsible. One of the Deputy Governors, Amitava Ghosh, a former CMD of Allahabad Bank, was appointed within one week of Pranab Mukherjee becoming the Finance Minister in 1982. He occupied the post for ten years that included Manmohan Singh’s tenure as Governor. The JPC held him “primarily responsible for the continuing irregularities in the banking sector”, and castigated him “for being casual in his approach to his duties.” KP Unnikrishnan, Member of the JPC, in his dissent noted that Ghosh “kept pushing the file back and forth. Inspite of the fact, that he had carved out a powerful niche in the structure of the RBI and remained so far nearly ten long years dealing with the Banking, Exchange control, large industrial accounts and the administration of the RBI and rendering even the Governors of the period feeble and ineffective.” (sic)
Then RBI Governor, S. Venkitaramanan, to his credit, had red-flagged the unprecedented boom in stock prices only to be ridiculed by MJ Pherwani, who died within a month of the scam erupting, under mysterious circumstances, and the finance ministry exulting that it was an endorsement of the reforms. Harshad Mehta also became a poster boy of the financial media adorning many of its covers. It was Venkitaramanan who initiated and enquiry into the source of funds that was fuelling the stock market boom, which resulted in narrowing down to his account with SBI.
Montek gives the impression that computerisation in RBI started only after the 1991 scam. In fact, the history of computerisation in the Reserve Bank goes back to the 1960s, receiving further momentum in subsequent decades. In fact, computerisatisation in banks owes to two important RBI Committees of the 1980s, both headed by Dr. C. Rangarajan. If computerisation did not pick up sufficient speed in certain key areas such as government debt, the blame should go to successive Governors of the 1970s and 80s, including Manmohan Singh.
One would have expected Montek to comment on the strong rumours in 1997 that he would become Governor, Reserve Bank. But, that was not to be. When Bimal Jalan’s term came to an end in 2003, the NDA was in power, and Montek was at the IMF, but the turn went to Dr. Y.V. Reddy, who was also at the IMF.
Montek gives a lucid explanation of the mega corruption issues that plagued the second tenure of UPA. He gives a detailed analysis of what went wrong in the CG, 2G, and Coal Block scams. But, he ruined everything by endorsing Kapil Sibal’s false analogy comparing sale of 2G licences with sale of water, which the government is entitled to sell cheap. Selling 2G cheap creates economic rent which can be exploited by profiteers as they use it to make further profit for themselves and for those who facilitated the deal. If everyone gets the same water cheap, it does not create rent for further exploitation. Using public office for private profit is what corruption is about.
Montek gives a broad overview of the functions of the Planning Commission where he was Member and later, Deputy Chairman. But, he also admits that the Commission never encouraged free debate, and that “Criticism was typically papered over and differences smoothed out rather than resolved.” He adds that, in its traditional form, it was irrelevant. But, he does not explain why it was not revamped or abolished by the UPA.
UPA vs. NDA
More disappointing is when the book wades into politics, taking a partisan view suggesting that many of the projects done by the NDA were actually initiated by UPA. He does not acknowledge that they were stuck due to inertia and indecision. At the same time, it gives credit to the UPA for reforms like the Right to Information Act, 2005, without conceding that at the core of it was the Vajpayee government’s Freedom of Information Act, 2002, which they delayed notifying as they never dreamt that they would lose the 2004 election. Similarly, he gives credit for the JAM trinity to the UPA saying that its basis was in the no-frills account of UPA to be used for direct benefit transfer with the support of Aadhaar and mobile telephony. Ditto for the National Highways Development Project started by Vajpayee in 1998. It all finally ends up as an exercise in passing on blame, disowning the inconvenient, and grabbing the accolades. More unprofessional is in not acknowledging that, in plain economic terms, the good and bad economic decisions take time to get reflected in economic numbers.
Montek takes it upon himself the blame for Manmohan Singh not resigning after the ordinance tearing episode. Maybe done to protect his mentor, but in the process he unwittingly projects his PM as one who did not have an independent view, or if he had one, did not stand by his own conviction. So, the overarching objective of the book does not seem confined to making Manmohan Singh the architect of the reforms, but also to sanitise him from the taint of corruption, and allegations of overall paralysis in administration.
If one were to wonder why this burning desire to hoist and protect Manmohan Singh, one need only go back to Daman Singh’s book, where she writes that the Ahluwalias were the only couple that her parents socialised with. Further, Manmohan and his wife had known the Ahluwalias since the 1970s, when they were in Washington, D.C., which Manmohan used to frequent. She adds that her dad was “instrumental in Montek joining him in the finance ministry in 1979…” even though Montek insists that he came through a formal selection process. They used to stay at each other’s houses, even when they were living in the same city, when repairs going on in either of the houses. `
The book finally reads like one of Finance Ministry’s internal memos, but over 400 pages long. It is interesting and informative, but there are inaccuracies in material facts, which could have been overcome with more research. The points of view are also biased, detracting from its utility. As compared to books by many other financial technocrats, the ones by C.D. Deshmukh, B.K. Nehru, I.G. Patel, M. Narasimham, and Y.V. Reddy, were more detailed, honest, and erudite. Unfortunately, Montek’s book comes low down in the list notwithstanding that he was a witness to one of the most exciting periods in Indian finance. This is very disappointing, considering he could have done much better. Montek concedes that public sector reform and FDI were missed opportunities. A third is the book itself, which remains a selfie, of the author with his mentor in the foreground. The rest have been photoshopped to obscurity.
Selfie or no selfie, this book was intended to be a travelogue. In a long journey, one is entitled to grab a wink or two. This could get reflected in the narrative. A basic premise in the entire thesis is the assumption that reforms is complete, and it is now time to hand out the credits. Reform is a long journey, and we are not even half way from where we should have been. For that full account, we will have to await another travelogue, a more complete and credible one.
Montek Singh Ahluwalia, Backstage: The Story Behind India’s High Growth Years, Rupa Publications, 2020. 434 pages, Rs. 595. Kindle edition, Rs. 385.